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Prices · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_00: Welcome to the Professional Ag Marketing Podcast.
• 0:04
  SPEAKER_00: If you want a deep dive into the ag markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_00: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_00: This is your host, Mike Minor.
• 0:22
  SPEAKER_00: Let's get started.
• 0:23
  SPEAKER_00: Today is March 1st, Lucas, and you know what that means.
• 0:26
  SPEAKER_00: It's crop insurance price averaging day, Mike.
• 0:31
  SPEAKER_00: One of our favorite days.
• 0:32
  SPEAKER_00: Maybe it's just me, I don't know about you guys, but we're gonna learn a little bit about our uh price, crop insurance average, uh, through the month of February today, what that got us, what it can get us, and then what we've seen historically.
• 0:45
  SPEAKER_00: So I'm uh looking to dive deep in some historical numbers here, Lucas.
• 0:50
  SPEAKER_01: Well, good.
• 0:50
  SPEAKER_01: I uh I know we were just talking.
• 0:52
  SPEAKER_01: You kind of get excited about this, but you are uh in the world of prices, Mike.
• 0:56
  SPEAKER_01: This is what I do.
• 0:57
  SPEAKER_01: So I could see where you would get excited uh about today.
• 1:01
  SPEAKER_01: And and so I guess first uh just kicking it off, you know, uh during the month of February, we average uh the price every day of the market, and that average at the end of the month becomes our projected price for uh crop insurance for 2024.
• 1:18
  SPEAKER_01: Um on corn that price came in at 466 on soybeans, it came in uh at 1155.
• 1:27
  SPEAKER_01: Um, we'll go historically uh here in a little bit of what that looks like, but you know, a couple of other crops uh maybe some of our listeners are looking at.
• 1:36
  SPEAKER_01: You know, spring wheat came in at 684, uh, that's significantly lower, oats at 338.
• 1:44
  SPEAKER_01: Um, and the only one that really was very close to last year uh was cotton, and cotton only uh is at 83 cents, uh, and last year was 84 cents.
• 1:57
  SPEAKER_01: So uh a little bit of a sneak peek there, but going back to uh our corn and beans here, you know, that projected price is very important because kind of this whole series that we've talked through over the last uh week and a half or two weeks, it we've talked about insurance coverage and and revenue protection type policies, and whether that's uh your 80% revenue protection, SEO, ECO, um, any of those private bands or additional prices, they all base their coverage off of this price, and so that's why it's pretty important uh to know what that price is.
• 2:34
  SPEAKER_01: And uh, and unfortunately, we're a lot lower than last year, although we saw it coming, it wasn't a surprise.
• 2:40
  SPEAKER_01: Um, you know, last year we were at$591 on corn and$1376 on soybeans, so around 20% lower uh on our corn and soybean price, which is similar to the other commodities uh that we grow around here.
• 2:57
  SPEAKER_01: Um so what do you think of that price, Mike?
• 3:00
  SPEAKER_01: Uh$466,$11.55.
• 3:04
  SPEAKER_01: Any thoughts uh as you look now that we got that price for crop insurance as you look ahead, what are you thinking?
• 3:11
  SPEAKER_00: Well, I'm gonna start off by giving it a benchmark, right?
• 3:15
  SPEAKER_00: So in general, historically, we've got six times out of the last sixteen years, like going back to 2008, if you go back to 08, six uh six years out of sixteen years, we had the spring price below the harvest price.
• 3:32
  SPEAKER_00: So that's the first thing I'm gonna say.
• 3:34
  SPEAKER_00: So we have very strong seasonality to it that the spring price is typically higher than the harvest price.
• 3:40
  SPEAKER_00: Correct.
• 3:40
  SPEAKER_00: So that's the first thing.
• 3:42
  SPEAKER_00: The the second thing is that um when we compare this year to prior years, I I think we would both agree that based upon some of the charts, some of the situation stage of the cycle that we're coming off of, it's very easily compared to what year, Lucas?
• 3:58
  SPEAKER_00: 2014.
• 3:59
  SPEAKER_00: 2014.
• 4:00
  SPEAKER_00: Uh in 2014, we were looking at 462 on corn, so very close to the 466 we had here through this month of Feb.
• 4:09
  SPEAKER_00: And then on November soybeans, they averaged 1136 that year, very close to 1155 now.
• 4:16
  SPEAKER_00: By the end of that year, 2014, 349 for a harvest price on corn and 965 on the soybeans.
• 4:23
  SPEAKER_00: So very bearish situations through that year, coming off of higher, tighter ending stocks years into more equity preservation years.
• 4:31
  SPEAKER_00: So the stage of the cycle, I think, is very, very similar with where we're sitting.
• 4:36
  SPEAKER_01: Yeah, and and we kind of, you know, when I thought about this, and it's always good to try to look historically and think of okay, where does this compare?
• 4:45
  SPEAKER_01: And it's odd we we our heads went right to 2014, um and and the prices are similar.
• 4:52
  SPEAKER_01: We're coming in a similar situation, like you said, we had a couple of strong price years uh back to back.
• 4:59
  SPEAKER_01: You know, back then it was driven by the 2012 drought, and then we kind of slipped down over the next couple years, um kind of following a similar trend.
• 5:08
  SPEAKER_01: Even last year, remember uh when we were looking back, uh we're like, well, what year does this really feel like?
• 5:15
  SPEAKER_01: We kept thinking of 2012 going into 2013, right?
• 5:19
  SPEAKER_01: So if in the granted this is more focused on the corn price discussion, but soybeans aren't gonna be similar.
• 5:27
  SPEAKER_01: Um it's odd that we're in this like 10-year cycle, and we were kind of there last year.
• 5:33
  SPEAKER_01: It was similar to what happened in 2020, and now we move one year later, and and here we are in 24, looking back to 2014.
• 5:42
  SPEAKER_01: Um I guess that's where I think we need to really recognize the cycle.
• 5:48
  SPEAKER_01: If there is a cycle there, uh it seems like there is, um, and also what that could mean come fall of 2024, right?
• 5:57
  SPEAKER_01: If if we follow this similar trend in 2014 and we see prices start to slip um, you know, much below four dollars, what does that do to our bottom line?
• 6:08
  SPEAKER_00: So when I look at benchmark of comparing uh everybody's farms to one another, Iowa State does a fantastic job.
• 6:16
  SPEAKER_00: They come out every January with the 2024 estimated costs of production in Iowa, and they've got break-evens on corn, like 447, and then about 1125 or so on soybeans.
• 6:29
  SPEAKER_00: Those are very generic numbers.
• 6:32
  SPEAKER_00: Um, it varies across everybody's farms, obviously, varies with yields, all of those things, but I usually like their numbers a lot to try to benchmark against.
• 6:40
  SPEAKER_00: So if you're talking$4.5 corn,$11.25 soybeans, you know, when you start comparing uh the spots that we got for our averages, pretty much if you have a zero basis on both of them, you're just above breakeven levels.
• 6:54
  SPEAKER_00: Projected.
• 6:55
  SPEAKER_00: Uh that's where I view it.
• 6:57
  SPEAKER_00: But like if you go back a couple years, maybe not so much 13 because of inflation, but 2022, you and I had a lot of podcasts where we talked about uh we could protect a breakeven on crop insurance.
• 7:11
  SPEAKER_00: Yeah, that was a big deal, or even protect a profit.
• 7:14
  SPEAKER_01: Like 80% revenue protection, and we were protecting breakeven.
• 7:17
  SPEAKER_00: You'd even have to buy the thing up to get it.
• 7:19
  SPEAKER_00: Correct.
• 7:20
  SPEAKER_00: Uh, you know, the last two years we haven't been able to see that really.
• 7:23
  SPEAKER_00: Yep.
• 7:23
  SPEAKER_01: No, and that's that's what happens.
• 7:25
  SPEAKER_01: Lower prices and our costs have gone up uh as well.
• 7:28
  SPEAKER_01: Um maybe cost uh you know came down a little bit in 24 versus 23.
• 7:33
  SPEAKER_01: Um but I think that that point that you made there of looking at where our breakeven prices are, it seems like we're kind of hovering right around uh breakeven right now, and with where the futures are, where our crop insurance prices are, and and I think that's as we look forward, um, you know, 2024, there's a lot of story to write here, right?
• 7:56
  SPEAKER_01: Like, I mean, we got a print.
• 8:02
  SPEAKER_00: That that's what he told me the other day.
• 8:04
  SPEAKER_01: Well, he's pretty optimistic.
• 8:05
  SPEAKER_01: But the like the uh I mean you you do have some drought in Iowa, you have some um, you know, it is what March 1st, we're sitting here today, and it's 60 plus degrees in Laverne, Minnesota.
• 8:17
  SPEAKER_01: You're not planting this weekend, are you?
• 8:19
  SPEAKER_01: No, not yet, but I uh there I did see somebody in South Dakota scratching dirt the other day uh on Twitter.
• 8:25
  SPEAKER_01: Like that doesn't bode well.
• 8:28
  SPEAKER_01: It feels like uh we should are gonna need moisture at some point, but of course that's in March, and everybody kind of likes drought and warm weather in March versus uh versus August.
• 8:38
  SPEAKER_01: But um I think what we really need to remember is this insurance is risk protection, right?
• 8:46
  SPEAKER_01: And and what is our biggest risk for 24?
• 8:49
  SPEAKER_01: And whether that's production risk or price risk, uh price risk, you can do a lot of different things to protect it, right?
• 8:56
  SPEAKER_01: You can call up Mike Minor and he can put a pricing strategy together using options and futures.
• 9:02
  SPEAKER_01: Production risk.
• 9:03
  SPEAKER_01: I mean, you're every day a farmer is trying to gain another bushel, but that's kind of where crop insurance got started.
• 9:10
  SPEAKER_01: Um, you know, protecting those bushels.
• 9:13
  SPEAKER_01: Nowadays, the crop insurance products kind of mimic a little bit or have a lot of flavor of price protection.
• 9:20
  SPEAKER_01: Uh, whatever you do, I think we have to recognize in 2024, if prices continue to go down, that's probably our biggest risk to profitability.
• 9:31
  SPEAKER_01: And if right now, today, before March 15th, I guess, I guess we do have two weeks.
• 9:37
  SPEAKER_01: Uh, now that we know the price, we can watch what the price action does on the board.
• 9:42
  SPEAKER_01: And let's really evaluate all of our options uh and evaluate and make the best decision for 24 so that if prices go down and we end similar to 2014, that we aren't uh feeling real stressed out about it, that we had a plan in place to protect us.
• 9:59
  SPEAKER_01: And if prices don't go down, that we can live with uh the fact that we we uh took some risk off the table and were able to sell bushels at a higher price if that's where prices go.
• 10:09
  SPEAKER_00: So uh if you would compare it to 14, 14 had a dollar thirteen price drop on corn and a buck seventy one from the spring to harvest prices.
• 10:19
  SPEAKER_00: So that'd put you a sub-10 bucks on the old uh soybean market, and then uh on the corn side, anyways, you'd be floating uh uh right around that same level at about three and a half bucks.
• 10:32
  SPEAKER_00: Yep.
• 10:32
  SPEAKER_00: That's kind of a scary thought.
• 10:34
  SPEAKER_00: It is, which is funny because with uh price estimates to stocks to use ratio history, uh, given our current fundamentals, I mean corn price should be about three and a half bucks on the dot.
• 10:46
  SPEAKER_00: Yep.
• 10:46
  SPEAKER_00: Very interesting.
• 10:48
  SPEAKER_01: That's uh maybe that's a little bit of something we should consider as we're we're looking at planting the 2024 crop, make sure we got some sort of price protection underneath of it.
• 10:58
  SPEAKER_00: All right, let's go into our next podcast here.
• 11:01
  SPEAKER_00: We'll see you in that one.
• 11:02
  SPEAKER_00: And thank you to all our listeners.
• 11:04
  SPEAKER_00: Please reach out to us at professional eggmarketing.com.
• 11:08
  SPEAKER_00: Check out our other podcast as well, Professional Egg Marketing, that's released every Friday.
• 11:13
  SPEAKER_00: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 11:19
  SPEAKER_00: See you next time.